The most expensive homes in the Wichita area are selling fast and the number of them available has fallen to levels not seen since before the Great Recession, according to a real estate analyst at Wichita State University.
Stan Longhofer, director of WSU’s Center for Real Estate, said the demand for homes that cost more than $500,000 and a limited supply of them were standouts of the 2021 Kansas Housing Markets Forecast, an annual report released this week. The change comes despite a pandemic and global recession that hasn’t yet negatively impacted home sales but could catch up in the next couple of years, Longhofer said.
For now, the housing market is booming, often causing “bidding wars.”
During the pandemic, labor and service sector jobs have seen bigger layoffs than office jobs that have more flexibility, he said. And people in those more flexible, usually higher-paid roles have been driving the demand for higher-end homes.
“It’s just sharpened and made even more extreme the separation between those in very fortunate economic situations with those who are not, “ he said. “And it’s those that are in the fortunate situation that are driving the housing market.”
Historically low interest rates and the economic environment of the fortunate people have dropped the supply of higher-end homes for sale to under six months, Longhofer said. It’s the first time the supply has been this low since the 2007-2009 recession, he said.
Shortage of homes
The housing market is considered balanced when there’s a four to six month supply of homes. The supply is calculated by dividing available homes by average homes sold each month.
For example, if 1,000 homes are available and on average 200 homes a month are selling over a year’s time, 1,000 divided by 200 equals a five-month supply — meaning if homes sell at the same pace, it will take five months to go through the inventory.
The stockpile has been low for years on homes under the $500,000 price point. Homes under $250,000, for example, have mostly been under a four-month threshold since at least 2015, according to the report.
Higher-end homes made it under the six-month threshold in mid-2020, the report shows. Those homes have recently hit a brisk turnaround for selling, according to Cindy Carnahan of the Carnahan Group at ReeceNichols of South Central Kansas.
“It’s been a very interesting year,” said Carnahan, who has been in real estate for 45 years. “I don’t think anyone would have predicted in a pandemic, election year that we would have a brisk market of any kind.”
Carnahan said it’s not across the board that homes over $500,000 are selling faster. Location, condition, price and terms of the sale matter, she said.
Solving the problem
Increasing appreciation in home value is the answer to the short supply of homes, Longhofer said.
Healthy appreciation causes people to build a new home. Appreciation in Wichita in 2020 is forecast to be at 6.6% and 5.6% in 2021. Both would be highs since at least 2016. Kansas is expected to see its appreciation end 2020 at 4.8% and then hit 5.7% in 2021.
In Wichita, the increased appreciation is expected to cause construction for single-family homes to climb in 2020 before taking a slight dip from that in 2021. Both years are expected to be the highest for new homes since 2009, according to the study.
Across Kansas, the stockpile of all homes for sale has hit a historic low, the report says. Statewide construction of new homes is expected to rise 12.1% this year and 21.6% next year, with most of the new homes being built in the Kansas City area, the report says.
Nationally, home sales and new home construction are anticipated to grow year-over-year in 2020 and 2021, according to the report, which used data from the National Association of Realtors. The report shows home sales are expected to climb 1.1% in 2020 and 8.5% in 2021; new construction is projected to rise 2.5% and 17.6%.
In Wichita, the large layoffs during the pandemic could eventually start to affect the red-hot housing market.
“I don’t think we will see price declines but a slowing of appreciation in 2022 and forward. But that’s speculation at this point, we haven’t done any forecasting of that,” Longhofer said. “But I think it’s important for people to keep in mind that the recession is still a reality. It will likely have some impact on the housing market at some point even though we are not seeing it yet.”
Contributing: Carrie Rengers with The Eagle